Bringing Company Politics to Light

More Firms Disclose Political Spending

Shareholders will likely benefit this year from a movement to protect stock values that encourages boards of directors to pay closer attention to the purpose and beneficiaries of their corporations’ political spending.

The movement is gaining steam. The Center for Political Accountability says 52 corporations — more than a third of which are in the Standard & Poor’s 100 index — have adopted shareholder resolutions in the past few years requiring analysis and disclosure of political spending. Such expenditures include contributions to political causes, campaigns and ballot initiatives; they can also encompass money given to trade associations and nonprofits.

Since 2004 the Washington, D.C., accountability nonprofit and six other shareholder advocacy groups have been promoting this effort. American Electric Power, General Electric, Hewlett-Packard, Pfizer and Procter & Gamble have been among the companies to adopt transparency policies, and several other major corporations are considering approving resolutions this year, says Bruce Freed, the center’s executive director.

Adopting these policies soon is crucial, says Freed, because of the rise in voter ballot initiatives across the United States on issues ranging from illegal immigration and gay marriage to minimum wages and energy company taxation. Ballot initiatives are often heavily funded, Freed adds, by corporate spending that might be hidden from shareholders.

How much a company can give to support a ballot initiative has no limit. “Companies often quickly donate money to ballot initiatives or trade organizations for political purposes without full disclosure or proper analysis of the risk such spending could have on a corporation’s reputation or its stock value,” Freed says. Even so, many corporate directors are apparently in the dark about the details of their company’s donations to political causes.

In a survey commissioned by the center in March 2008 among 255 directors of public companies, 77 percent said they were familiar with campaign finance and disclosure laws. Upon closer questioning, though, 88 percent didn’t know companies aren’t required to disclose all their political spending; 87 percent didn’t know trade associations aren’t required to divulge their members and political beneficiaries.

Corporations that adopt the center’s political spending resolutions agree to disclose separate totals for spending by the company and its political action committees. They also consent to release an itemized list of recipients, amounts and dates of contributions to political causes and trade associations and any other corporate payments used for political purposes.

In addition, the Center for Political Accountability recommends that members of the board of directors query management about the purpose and relevance of all such spending. Some corporations, says Freed, have tried to deflect adopting these resolutions.

Individual investors can play an important role in helping to promote corporate transparency in political spending by voting when they receive shareholder proxies, typically in March through June.

“It’s important for individual investors to vote on these shareholder resolutions, so management and members of corporate boards of directors know how they feel about political spending disclosure,” Freed says. “Each vote sends a message.”

Kate Fitzgerald is a free-lance writer based in Scottsdale, Ariz., specializing in business and technology.